How to figure out option pricing

ravi06 · #1 10th June 2007, 09:42 AM

Hi
I have been trading for a year now, and so far it has been good going.I Would like to try options now.But do not have any knowledge in option Trading.
If some one can tell how to figure out option pricing.As they are totally different from the actual stock price
For example infoys stocks last trade on friday june 8th was 1952,so if i make a call for june 28th for strike price of 2000.00.
Then what would be my option price?

swagat86 · #2 10th June 2007, 10:25 AM

Hi Ravi,

http://content.icicidirect.com/learning/university.htm

oxusmorouz · #3 10th June 2007, 11:31 AM

Quote:

Originally Posted by ravi06

Hi
I have been trading for a year now, and so far it has been good going.I Would like to try options now.But do not have any knowledge in option Trading.
If some one can tell how to figure out option pricing.As they are totally different from the actual stock price
For example infoys stocks last trade on friday june 8th was 1952,so if i make a call for june 28th for strike price of 2000.00.
Then what would be my option price?

As far as I know, there are 2 widely used methods to price options, binomial pricing and Black-Scholes model. The 2nd is held to be authoritative.

http://en.wikipedia.org/wiki/Black-Scholes

http://en.wikipedia.org/wiki/Binomia..._pricing_model

oxusmorouz · #4 10th June 2007, 11:38 AM

Quote:

Originally Posted by ravi06

Hi
I have been trading for a year now, and so far it has been good going.I Would like to try options now.But do not have any knowledge in option Trading.
If some one can tell how to figure out option pricing.As they are totally different from the actual stock price
For example infoys stocks last trade on friday june 8th was 1952,so if i make a call for june 28th for strike price of 2000.00.
Then what would be my option price?

Also, if you use metastock, there is an inbuilt theoritical options price calculator based on log normal distribution (Black Scholes model).

ravi06 · #5 10th June 2007, 08:34 PM

i checked out these models,but was unable to figure out fully.As at one or the other point one of the variable in these formulas are hard to figure.Is there any easy way of reading option pricing.
Any example would be helpful.

Linus · #6 10th June 2007, 09:02 PM

Quote:

Originally Posted by ravi06

i checked out these models,but was unable to figure out fully.As at one or the other point one of the variable in these formulas are hard to figure.Is there any easy way of reading option pricing.
Any example would be helpful.

Option pricing involves complex calculations. Premiums depend on various factors like 1. Change in price of underlying 2. Volatility 3. Time to expiry 4. Strike price 5. Interest rates etc etc.

Instead of going into how the premiums are arrived at, learn how to trade Options.

ss

ravi06 · #7 10th June 2007, 10:31 PM

Thanks sunil
i am trying to figure these prices only to learn options trading, I understand this is complex process.But where do i start from.
For example If i have to go long on infosys for july 2007. with the strike rate of 2000.Then how do i analyse my preminum and at what part i would be in the money.

Linus · #8 10th June 2007, 11:27 PM

Quote:

Originally Posted by ravi06

Thanks sunil
i am trying to figure these prices only to learn options trading, I understand this is complex process.But where do i start from.
For example If i have to go long on infosys for july 2007. with the strike rate of 2000.Then how do i analyse my preminum and at what part i would be in the money.

Your strategy will be based on how bullish/bearish you are on the underlying. You will be in the money @ strike + premium.

INFY 2010 June call @26.70, and July 2010 call @57. There is no 2000 Call on Infy.

Index Options on Nifty are better than stock Options, because of liquidity and it is easy to track the Index than individual stocks.

ss

ravi06 · #9 11th June 2007, 01:29 AM

Thanks again Sunil..i was just quoting 2000 as an example,but where do we get this price frm @26.70 and july call@57.This is what i am trying to figure out,these @ prices.
what are these prices and how we figure these.If you can show me a example for these prices,should be helpful.

swagat86 · #10 11th June 2007, 01:51 AM

Quote:

Originally Posted by ravi06

Thanks again Sunil..i was just quoting 2000 as an example,but where do we get this price frm @26.70 and july call@57.This is what i am trying to figure out,these @ prices.
what are these prices and how we figure these.If you can show me a example for these prices,should be helpful.

http://www.nseindia.com/marketinfo/f...key=INFOSYSTCH

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